Three forces dominated U.S. fixed income markets this week: a March employment report that looked strong at first glance, an energy shock from the Iran conflict, and a meaningful repricing of Federal Reserve expectations.
The Bureau of Labor Statistics (BLS) reported 178,000 non-farm payrolls in March, well above the market expectation of 59,000. However, the headline figure was heavily distorted: healthcare contributed 76,000 jobs, including approximately 35,000 physicians’ office workers returning from a strike. Underlying job creation was therefore considerably softer.
Wage data reinforced the more cautious read. Average hourly earnings slowed to 3.5 per cent year-over-year, the weakest pace since May 2021, while the average workweek edged down to 34.2 hours. The unemployment rate held at 4.3 per cent, largely reflecting a decline in labour force participation. Taken together, the data point to a labour market that is gradually cooling. Despite these nuances, the bond market reacted negatively to the non-farm payroll report.
The geopolitical backdrop remains highly consequential. The U.S.-Israel military operation against Iran has removed roughly one-fifth of global crude supply through Strait of Hormuz disruptions and regional infrastructure attacks. WTI crude is trading near $112 per barrel, its highest level since 2022, creating a persistent inflationary impulse that makes the Fed’s task of returning inflation to target considerably more challenging.
Fed rate expectations have shifted sharply. The CME FedWatch tool now shows a 94.8 per cent probability of a hold at the May FOMC meeting, while the probability of rates remaining unchanged through December 2026 has risen above 51 per cent. Markets have moved from pricing in two to three cuts earlier this year to now assigning only a 36 per cent chance of even a single 25-basis-point reduction by year-end. The Fed’s current target range of 3.50–3.75 per cent looks set to persist well into the second half of 2026.
U.S. Treasury Yield Curve
The curve has steepened significantly over the past month, with the long end leading the move higher.
| Tenor | Current | 1 Wk Ago | 1 Mo Ago | Wk Δ | Mo Δ |
|---|---|---|---|---|---|
| 2-Year | 3.79% | 3.63% | 3.45% | +16 bps | +34 bps |
| 5-Year | 4.05% | 3.84% | 3.61% | +21 bps | +44 bps |
| 10-Year | 4.31% | 4.14% | 3.97% | +17 bps | +34 bps |
| 30-Year | 4.88% | 4.66% | 4.41% | +22 bps | +47 bps |
Source: U.S. Treasury; Federal Reserve H.15. Figures as of April 2–4, 2026.
Rising yields have pushed mortgage rates higher, with the 30-year fixed averaging 6.41 per cent and the 15-year at 6.02 per cent, keeping affordability conditions strained as the spring buying season begins.
Canada: Rates and Mortgage Implications
Government of Canada (GoC) yields have risen alongside U.S. Treasuries. The 5-year Canada Mortgage Bond (CMB) yield sits near 3.31 per cent, the 10-year CMB at 3.84 per cent, and the benchmark 10-year GOC bond near 3.48 per cent. For mortgage borrowers, the best 5-year fixed rates are currently in the 4.04–4.09 per cent range for high-ratio mortgages, with major bank posted rates near 4.29 per cent and variable-rate products around 3.30 per cent. Fixed rates are likely to remain sticky given upward pressure on GoC bond yields from global forces, even if the policy rate holds or edges lower. Borrowers approaching renewal should plan for a prolonged period of limited rate relief.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
Development charges are buried in new home prices, and they’re adding tens of thousands to the cost of ownership. First-time buyers, young families, and newcomers bear the brunt, while municipalities face little pushback for raising them.
The recent $8.8 billion federal-provincial subsidy offers temporary relief, but it doesn’t fix the bigger problem: cities rely on a broken funding model that shifts costs onto new homeowners instead of spreading them more fairly across the tax base. Without real reform, these fees will climb again — and housing affordability will continue to suffer.
Read our analysis in the latest Housing Affordability Watch: The Hidden Tax Killing Housing Affordability
Independent Opinion
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